Mike Waites supplies the engines that drive a big chunk of the Canadian economy. From 400-ton trucks in the oil sands to earth-moving equipment in highway projects, Finning International Inc.'s hand is everywhere - as dealer for heavy equipment behemoth Caterpillar Inc. in a large swath of Western Canada. In 2½ years as Finning CEO, Mr. Waites has passed through a whipsaw of boom, doom and recovery. He describes the education of a CEO riding a resources roller-coaster - not only in Canada but also in South America.
When you came in as CEO, your predecessor predicted choppy times. I don't think he realized how choppy.
Neither did I. About 90 days after, things started going south pretty hard. We have a good business model to endure a recession. We're not particularly capital intensive. We went into the recession with a strong balance sheet. We responded quite quickly, but we should have responded more quickly, and these situations bring learning opportunities.
What do you mean?
We began to understand how inefficient we were in cost structure in some areas. I began to understand how our cash model worked. It's quite fascinating: Cat gave us the ability to cancel orders to them as the recession was coming on, and we cancelled a lot - in excess of $100-million of equipment. At the same time, our customers stopped buying machines from us, and we still had cash going out to Caterpillar for orders that we didn't cancel - for up to 180 days.
So for a number of months we were watching the cash equation. We dipped into our committed line of credit. At our peak we used $700-million of the $800-million, before it started to swing around.
Give me a sense of what that felt like.
We had about $100-million left, which is like you and I having $20 in our wallet. It wasn't a lot of buffer left as we swung back, but we got through it.
And we didn't open up credit lines. We didn't suspend dividends, and we didn't do equity recapitalizations. We drove through that and lowered the cost structure, and we got a lot better in serving our customers. They were some of the toughest times I've seen in 30 years in business.
So what was the big lesson?
Stay focused on what you're about. Stay focused on your customers, and keep your humility. You have to earn that customer loyalty. You can't take it for granted. Our company is all about supporting our customers and we talk about our service reputation.
At Finning, they still tell the stories about our field-service tech people - the guys who go out two hours west of Rocky Mountain House, Alta., to fire up a D8 [tractor]on a Friday night. That's what we're about, and that's what we have to continue to be about.
So your culture saved you?
What we fell back on in those tough times was our service business, which kept going strong. It actually came off a little outside of mining, because some of our customers weren't even working their machines. They parked the machines. But that service and support part held up much stronger.
Now, we are seeing a resurgence of that as our customers go back to work, and some are opting for austerity measures, learning from the recession. So we're rebuilding a lot of machines, which is a good business for us.
Is there a tendency in a resource boom to think you're so smart that you can just keep selling units?
Yes, more so in Canada than anywhere else. The U.K., where we also operate, is used to battling it out, so they had to build it on service. They knew they had to be lean and mean and efficient.
In Canada we had some very good years. We became inefficient in a number of areas. It was the right thing at the time - people were clamouring for machines; we got the machines into the field, and then they started needing service and support. And that was a good business model, but as we were doing that, we lost some leanness.
Weren't you also fortunate that the oil sands have come back so quickly?
The oil sands have always been fairly robust. It represents the largest body of hydrocarbon reserves in the world that aren't state-controlled. It's a tremendous resource, and we are very fortunate in having the oil sands as Canadians. We need to stop the hand-wringing around the fact that we have the oil sands, and capitalize on that opportunity in terms of technology we can bring to the party. How can we take what we've learned and improve our environmental record?
Is there any way of measuring your role there?
Our Canadian company has about $2.5-billion of annual revenue, and about $800-million to $1-billion is oil sands related. It's a big part of our business.
How do you feel about being so reliant on commodities, not only in Canada but also in South America?
We certainly have a heavy commodity component; the rest is more infrastructure. In South America, we're in Chile, Argentina, Bolivia and Uruguay. We have about $1.5-billion in revenue there, and about $800-million is mining-related.
I'm very bullish on commodities, mostly because of the demand in Asia for consumer goods, which in turn drives base metals, precious metals, metallurgical coal - you name it - and I don't see that changing. The rate of growth will ebb and flow, but there's an underlying, upward growth trend that's a tremendous opportunity for us and many other companies.
It's a very attractive backdrop in South America with huge growth, lots of copper mines. South America is a good resource-rich copper basin from which to supply Asia, so we see a great deal of growth there.
So your two big drivers are the oil sands and northern Chile mining?
Absolutely. I think we can double that South American business in five years, to $3-billion. That will be driven mostly out of Chilean mining, but with Argentina's time to come.
And it all gets back to China?
It does - that's the machine that's fuelling it.
As a non-technical guy, how do you adapt to a company like this?
In many ways, this is my dream job. Growing up, I always loved engines, and now I get to climb over the biggest engines around. It was a pretty humble beginning. I was always a poor student and ended up buying a lot of beaters and fixing them up.
Do you work on cars at home now?
I don't work on cars so much any more, but I have managed to have a couple of motorcycles in the barn. My pride and joy now is a Suzuki GSX-R 1000, and I've got it all done up with Ohlins suspension and a Harris racing exhaust system.
I used to tear engines apart and thoroughly enjoy it. I don't pretend to know as much as our guys swinging the wrenches, but I can talk to what's going on in the field and understand what customers are saying. I'm enjoying myself - I'm a bit of a piston-head.
: MICHAEL WAITES
Title: President and CEO, Finning International Inc., Vancouver
Personal: 56 years old; born in Britain, emigrated to Canada with his family in 1967.
Education: BA and MA in economics, University of Calgary. MBA from Saint Mary's College of California.
1977: Joined Chevron Canada, and rose to vice-president and CFO; worked six years for Chevron in San Francisco.
July, 2000: Became executive vice-president and CFO of Canadian Pacific Railway; also ran U.S. rail operations.
2006: Joined Finning as CFO.
May, 2008: Promoted to CEO, succeeding Doug Whitehead.